Michigan pensions adjusted to ordinary income

[dltmoll]

My husband and I both receive pensions through Michigan Publuc School Employees Retirement System, so they are paid by the state of Michigan. In February we received a "Notice of Adjustment" stating that the total amount for both of ours combined was adjusted to zero. I responded to the adjustment notice on February 22nd, sending all paper copies of my documentation (state and federal returns, 1099R forms, etc.),  heard nothing until this past Friday, May 15th, when I received the letter saying I owed interest and penalty as well as the tax amount. This letter was dated May 19, four days post-dated, and is apparently the latest glitch by the state - a friend of mine received the same letter, stating that she owed over  $300 in penalties and interest on a $0 balance. 

In addition, my 97 year old mother-in-law, who has been receiving both her own and my deceased father-in-law's MPSERS pensions for 35 years, received notification that my father-in-law's pension was "adjusted" to zero but hers was fine. We sent in an amended return including my father-in-law's death information; the amended return was never acknowledged and she received the same May 19th letter.

I have filled out the form requesting an "informal hearing" and sent all of my paperwork yet again, but with the massive mess that is the result of the Treasury Department changing its computer system, I hold out little hope that I'll be hearing anything in the near future. In the meantime, I have read that using TurboTax my have contributed to the problem. Is there anything I should be doing in regard to this possibility?

[pk]

@dltmoll , Sorry to hear of this messy situation.  Am responding only because  (1)  no body else has picked it up and (2) because I was MI resident for over 30 years and a tax professional for at least 10 years. Now I am retired, volunteering ( TurboTax) and in CA.

On reading through all that you have said/shared, my  view is that  MI Treasury is already dealing with you , have contacted you  ( even if by auto-generated mail) and therefore TurboTax can have no place in this.  MI Treasury  will eventually clean up the mess--- just will take time.  At the same time it bothers me that they have sent you a bill --- I thought MI did not tax private or public pension -- when appropriate age and Total Household Resource etc. are met.  If there has been no change in the laws ( please check ), then I would just hold still and let the dust settle.

Is there anything I can do for you ?

pk

[dltmoll]

Thanks for your response. Tax returns in Michigan have been a nightmare for thousands of people this year- there was a two page article about it yet again this week in the Freep. It has been mentioned in other posts here that someone at the State level had claimed that many of those who had problems had used TurboTax -  something about some incompatibility with the Treasury Department's new IT system. All I really wanted was to know if others had the problem and whether it was worthwhile to send an amended return (even though there would be no actual amendments but perhaps the software issue had been fixed?) even though we sent in an amended return for my mother-in-law that included more information about my deceased father-in-law two months ago and have gotten no direct acknowledgement that that has been received. 

The change in Michigan law for those in our age group was a phasing out of tax on pensions over four years: 25% year one, 50% year two, 75% this year (up to a certain amount - the amount that was "adjusted" for us). Our returns for years 1 and 2 were accepted with no issues; but not this time. I did try calling, but the person on the other end could not help.

So, I will wait and see if they acknowledge either my challenge to the original "adjustment" that I sent in three months ago or my request for an "informal" meeting. I anticipate that this could take all year, but wondered if anyone knew something I don't know. I guess we're all in this quagmire together.